Post on 31-May-2020
February 13, 2020
Why Value?An Overview of Healthcare Financing
DAVID MUHLESTEIN , PHD JD
CHIEF RESEARCH OFFICER
@DAVIDMUHLESTEIN
DAVID.MUHLESTEIN@LEAVITTPARTNERS.COM
©2020 LEAVITT PARTNERS 2
Learning Objectives
Topics To Cover
1
3
4
Key Challenges
Current Efforts
Barriers and Opportunities
Need for Value
2
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Three Facets of Healthcare
See also Reinhardt, Uwe, “Priced Out” 2019
Clinical Care Financing Administrative Structure
The Need for Value
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Insurance Coverage
16.7%18.2%
11.0%
8%
10%
12%
14%
16%
18%
20%
Uninsured Rate Among the Nonelderly Population1972-2018
Source: CDC, “Long-term Trends in Health Insurance Coverage: Estimates From the National Health Interview Survey, 1968–2018” https://www.cdc.gov/nchs/data/nhis/health_insurance/TrendHealthInsurance1968_2018.pdf
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6Healthcare Spending by Country
Total Spend
0
2
4
6
8
10
12
14
16
18Tu
rkey
Russ
ia
Mex
ico
Luxe
mbo
urg
Latv
ia
Pola
nd
Lith
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nia
Slov
akia
Czec
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ic
Isra
el
S. K
orea
Hung
ary
Irela
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Cost
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Chile
Icel
and
Gree
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Slov
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Italy
Spai
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Port
ugal
New
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Aust
ralia
Finl
and
Grea
t Brit
ain
Belg
ium
Denm
ark
Net
herla
nds
Aust
ria
Nor
way
Cana
da
Japa
n
Swed
en
Germ
any
Fran
ce
Switz
erla
nd USA
Perc
ent o
f 201
6 GD
P
0
2
4
6
8
10
12
14
16
18Tu
rkey
Russ
ia
Mex
ico
Luxe
mbo
urg
Latv
ia
Pola
nd
Lith
uani
a
Esto
nia
Slov
akia
Czec
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publ
ic
Isra
el
S. K
orea
Hung
ary
Irela
nd
Cost
a Ri
ca
Chile
Icel
and
Gree
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Slov
enia
Italy
Spai
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Port
ugal
New
Zea
land
Aust
ralia
Finl
and
Grea
t Brit
ain
Belg
ium
Denm
ark
Net
herla
nds
Aust
ria
Nor
way
Cana
da
Japa
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Swed
en
Germ
any
Fran
ce
Switz
erla
nd USA
Perc
ent o
f 201
6 GD
P
Government & Compulsory Spend
Source: OECD (2019), Health spending (indicator). doi: 10.1787/8643de7e-en
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Continued Growth of Medical Care
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
1950s 1960s 1970s 1980s 1990s 2000s 2010s
Average Difference Between Medical Inflation and Total Inflation
Average: 1.7%
Source: St. Louis Reserve, “Inflation in the healthcare industry vs. general CPI”
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National Health Expenditures8
$3.6T
2%
31%
0%
5%
10%
15%
20%
25%
30%
35%
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
1960
1970
1980
1990
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Perc
ent o
f Fed
eral
Spe
ndin
g
Spen
ding
in $
Billi
ons
Total Spend Percent of Federal SpendingSource: Leavitt Partners Analysis of Federal Health Expenditures and Gov’t Spending
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Projected Federal Budget
Federal Spending, 2000-2048
Source: CBO 2019 Long-Term Budget Projections
18%31%
13%
22%23%
22%
47%
26%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% o
f Fed
eral
Spe
ndin
g
Other Spending
Social Security
Net Interest
Health Care
Actual Projected
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-5.3%
-8.8%
-16.8%
-24.3%
-30%
-25%
-20%
-15%
-10%
-5%
0%1-Year 2-Year 5-Year 10-Year
Projected Relative Reduction in Federal SpendingExcluding Healthcare, Social Security and Interest
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Healthcare’s Impact on Income
$4,550
$2,900
$5,050
$1,450
$13,050
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
Family of Four with Employer-Based Insurance, $100k Income
Employer Contribution to Insurance
Employer Contribution to Medicarepayroll
Taxes that Fund Health Programs
Out of Pocket Spending
Health Insurance
$27,000
Source: Kaiser Family Foundation. Household Health Spending Calculator, Peterson-Kaiser Health System Tracker
Key Challenges to Change
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Volume of Care
17.0
4.0
1.6
02468
1012141618
Doctor Visits Per Year
Source: OECD Health Data 2018.Based on most recent year’s reported data for each country
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Impact of Pricing: Procedures14
Notes: US refers to the commercial average. Source: International Federation of Health Plans, 2015 Comparative Price Report.
$1,786 $2,003
$3,814
$6,040 $6,199
$8,099
$15,930
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
Cost of Appendectomy, 2015
$14,579 $18,501
$24,059 $28,888
$32,480 $34,224
$78,318
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
Cost of Bypass Surgery, 2015
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Impact of Pricing: Drugs15
Notes: US refers to the commercial average. Source: International Federation of Health Plans, 2015 Comparative Price Report.
$48
$101 $102
$126
$292
$-
$50
$100
$150
$200
$250
$300
$350
South Africa Spain Switzerland UnitedKingdom
United States
Cost of Xarelto, 2015Xarelto is used to prevent blood clots
$552
$822
$1,253 $1,362
$2,669
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
South Africa Switzerland Spain UnitedKingdom
United States
Cost of Humira, 2015Humira is used to treat rheumatoid arthritis
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$59
$11,671
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
Primary Care Visit Hospitalization(Hospital Component)
Average Medicare Payments, 2017
Pricing Drives Incentives
Source: Leavitt Partners Analysis of Medicare Claims Data
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Healthcare and Jobs
Source: Leavitt Partners Analysis of BLS Quarterly Census of Employment and Wages“Healthcare” is the NAICS segment that Includes healthcare and social assistance employment for government and private employers
-47%
-13%
11%30%
46%
-60%
-40%
-20%
0%
20%
40%
60%
Manufacturing Retail trade Educational Services Accommodation andfood services
Health care and socialassistance
Change in Industry Employment, 1990-2018
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Healthcare’s Role in the Economy
Source: Leavitt Partners Analysis of BLS Quarterly Census of Employment and Wages“Health care” is the NAICS segment that Includes healthcare and social assistance employment for government and private employers
Value-Based Efforts
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The Theory of Healthcare Reform
Pay Providers Differently for Care
Providers Change Their Behavior
Better Outcomes
Better Experience
Lower Costs
Payment Reform Delivery Reform Triple Aim
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ACO GrowthN
umber of Lives Covered (M
illions)
44 Million Lives
Source: Leavitt Partners and Torch Insight
0
5000000
10000000
15000000
20000000
25000000
30000000
35000000
40000000
45000000
50000000
0
200
400
600
800
1000
1200
ACO
s
ACOs and Total Covered Lives
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Source: Leavitt Partners Center for Accountable Care Intelligence
Hospitals in ACOs Over Time
22
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ACO Results - Experience
21%
59%52%
78%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
1 2 3 4 5 6
ACO Performance by Years of Experience
Received Bonus Generated Savings
Leavitt Partners Analysis of 2018 Medicare Shared Savings Program Results.
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MSSP Quality and Savings
-15%
-10%
-5%
0%
5%
10%
15%
70% 80% 90% 100%
Savi
ngs R
elat
ive
to B
ench
mar
k
Composite Quality
Quality and Savings
Leavitt Partners Analysis of 2018 Medicare Shared Savings Program Results.
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Massachusetts Alternative Quality Contract
See Song, et. Al., “Health Care Spending, Utilization, and Quality 8 Years into Global Payment”, NEJM July 2019, Table 2Net savings calculated as adjusted average savings less incentive payments
-7.5%
0.7%
2.2%
0.5%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
First Half Second Half
Net Savings
2009 & 2010 Cohorts 2011 & 2012 Cohorts
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Most Recent Medicare ACO Program Results
$73 $115 $135
$1,559
$- $200 $400 $600 $800
$1,000 $1,200 $1,400 $1,600 $1,800
MSSP Pioneer Next Gen ComprehensiveESRD Care
Savings Per BeneficiaryMost Recent Year Available
Challenges and Opportunities
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Framework To Managing a Population28
Create Intervention
Opportunities
Identify Population Needs
Partner Appropriately
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Challenges to Success in ACO Arrangements
Difficulty finding willing provider partners
29
Inadequate clinical integration
Accounting or financial tracking
Misaligned quality requirements
Cultural compatibility with value
Lack of technology to support value-based care
Lack of interest or misalignment of payers or purchasers to engage
Difficulty securing reserves necessary for risk
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Revising the Business Model30
Capacity-Focused ApproachBusiness model:1. Identify the best-paid services2. Build capacity for those services3. Fill that capacity
Needs-Based ApproachBusiness model:1. Identify patients’ needs2. Build low-priced services to fulfill
needs3. Prevent high-cost
care
Smart on Value
www.leavittpartners.com801-538-5082
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@LeavittPartners